Target stock surges as Q2 results top expectations, guidance raised

Target (NYSE: TGT) saw its shares soar 15% on Wednesday after the retailer reported better-than-expected second-quarter earnings and revenue while also raising its full-year profit outlook.

The Minneapolis-based company posted adjusted earnings per share of $2.57, surpassing analyst estimates of $2.19. Revenue for the quarter came in at $25.45 billion, beating the consensus forecast of $25.2 billion and representing a 2.6% YoY increase.

Comparable sales grew 2% in the second quarter, driven by a 3% increase in traffic. Digital comparable sales rose 8.7%, with same-day services experiencing double-digit growth.

Target's operating income margin rate improved to 6.4%, up 160 basis points from the previous year, primarily due to a higher gross margin rate.

"We made a commitment to get back to growth in the second quarter, and the team delivered, all while expanding operating margins and growing EPS by more than 40% compared to last year," said Brian Cornell, chair and CEO of Target Corporation.

The company raised its full-year earnings guidance, now expecting adjusted EPS between $9.00 and $9.70, up from the previous range of $8.60 to $9.60. However, Target anticipates comparable sales growth for the year to be in the lower half of its previously stated 0% to 2% range.

For the third quarter, Target forecasts comparable sales growth of 0% to 2% and adjusted EPS between $2.10 and $2.40.

The retailer noted improving trends across discretionary categories, with apparel comparable sales growing more than 3% in the quarter. Target also reported continued strength in its beauty segment.

Following the results, Wall Street analysts were quick to share their thoughts:

Roth MKM: "Target's 2Q (comp sales/profitability beat) eases the dual fears of increased competition and a weakening consumer."

Jefferies: "Discretionary category trends continue to improve with apparel growing by more than 3 points. GM expanded ~190bps helped by merchandising initiatives. As a result, OM of 6.4% was ahead of consensus."

Morgan Stanley: "Target [is] executing amid a tougher backdrop. Q2 solid, FY guide not a bullseye, but better than lowered expectations."

Baird: "Net, encouraging results and appropriately measured outlook. Expect shares to respond favorably. Reiterate Outperform"

Oppenheimer: "We overall look very favorably upon a better-than-expected Q2 top- and bottom-line delivery from Target in a very low-expectation setup."

JPMorgan: "Overall, TGT posted strong results, with $2.57 of EPS well ahead of our $2.24 and the Street’s $2.19 per Consensus Metrix, driven by better-than-expected sales growth and a gross margin beat."

RBC Capital: "TGT printed a significantly better quarter than anticipated, with comp sales +2% (RBCe +0.8% / cons. +1.3% / we believe the buyside bar was +1.5%) and adj. EPS +42% y/y to $2.57 (RBCe $2.16 / cons. $2.17)."

By Sam Boughedda

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